Question

Corning-Howell reported taxable income in 2021 of $172 million. At December 31, 2021, the reported amount of some assets and liabilities in the financial statements differed from their tax bases as indicated below:
  

	Carrying Amount				Tax Basis
Assets
Current
Net accounts receivable	$	60	million		$	64	million
Prepaid insurance		72	million			0
Prepaid advertising		56	million			0
Noncurrent
Investments in equity securities (fair value)*		56	million			0
Buildings and equipment (net)		412	million			332	million
Liabilities
Current
Deferred subscription revenue		64	million			0
Long-term
Liability—compensated future absences		646	million			0

^*Gains and losses taxable when investments are sold.
  
The total deferred tax asset and deferred tax liability amounts at January 1, 2021, were $182.25 million and $25 million, respectively. The enacted tax rate is 25% each year.

Required:
1. Determine the total deferred tax asset and deferred tax liability amounts at December 31, 2021.
2. Determine the increase (decrease) in the deferred tax asset and deferred tax liability accounts at December 31, 2021.
3. Determine the income tax payable currently for the year ended December 31, 2021.
4. Prepare the journal entry to record income taxes for 2021.
  

Answer 1

1
		Carrying Amount			Tax Basis		Deductible temporary difference	Taxable temporary difference
	Assets
	Current
	Net accounts receivable	60	million		64	million	4			When Carrying amount of ASSETS>Tax basis = Deferred tax Liabilitiy created.
	Prepaid insurance	72	million		0			72		When Carrying amount of ASSETS<Tax basis = Deferred tax Asset created.
	Prepaid advertising	56	million		0			56		When Carrying amount of Liability<Tax basis = Deferred tax liability created.
	Noncurrent									When Carrying amount of Liability<Tax basis = Deferred tax Asset created.
	Investments in equity securities (fair value)*	56	million		0			56
	Buildings and equipment (net)	412	million		332	million		80
	Liabilities
	Current
	Deferred subscription revenue	64	million		0		64
	Long-term
	Liability—compensated future absences	646	million		0		646
							714	264
					Tax rate	25%
			Deferred tax liability					66
			Deferred tax Assets				178.5
							(714*25%)	(264*25%)
2		Deferred tax liability	Deferred tax Assets
	01-Jan-21	25	182.25
	Increase(decrease)	41	(3.75)
	31-Dec-21	66	178.50
3	Income tax payable:
	Net income	172	million
	Tax rate@25%(income tax payable)	43	million		(172*25%)
4	Account tiles and explanation	Debit	Credit
	Income tax expense - current	43
	Income tax expense - deferred	37.25
	Deferred tax liability		37.25		(41-3.75)
	Income tax payable		43